UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM 10-Q

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: November 30, 2014

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from: _____________ to _____________

 

 

Royal Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware		000-52547		11-3480036
(State or Other Jurisdiction of		(Commission		(I.R.S. Employer
Incorporation or Organization)		File Number)		Identification No.)

 

543 Bedford Avenue, #176, Brooklyn, NY 11211
(Address of Principal Executive Offices) (Zip Code)

 

800-620-3029
(Registrant’s telephone number, including area code)

 

N/A
(Former name or former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

  

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 8,664,609 shares of common stock issued and outstanding as of January 6, 2015.

  

 

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, contained in the Company’s Form 10-K dated August 31, 2014.

 

TABLE OF CONTENTS

 

			Page
PART I - FINANCIAL INFORMATION
Item 1:	Condensed Unaudited Consolidated Financial Statements		F-1
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3
Item 3:	Quantitative and Qualitative Disclosures About Market Risk		7
Item 4:	Controls and Procedures		7
PART II - OTHER INFORMATION
Item 1:	Legal Proceedings		8
Item 1A:	Risk Factors		8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		8
Item 3:	Defaults upon Senior Securities		8
Item 4:	Submission of Matters to a Vote of Security Holders		8
Item 5:	Other Information		8
Item 6:	Exhibits		8

 

 

PART I - Financial Information

Item 1: Financial Statements

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Balance Sheets

 

		November 30, 2014				August 31, 2014
		(Unaudited)				(Audited)
Assets
Current assets
Cash		$	80			$	288
Marketable securities			11,501				20,069
Total current assets			11,581				20,357
Energy properties:
Mining properties			12,900				12,900
Accumulated depreciation, depletion and amortization			-				-
Net properties			12,900				12,900
Total assets		$	24,481			$	33,257
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable and accrued expenses		$	77,617			$	74,741
Convertible notes payable			49,400				49,400
Notes payable			33,785				33,785
Due to related party			15,606				8,342
Total current liabilities			176,408				166,268
Commitments and contingencies
Stockholders’ deficit
Preferred stock: $0.00001 par value; authorized 10,000,000 shares; 100,000 shares issued and outstanding at November 30, 2014 and at August 31, 2014			1				1
Common stock: $0.00001 par value; authorized 500,000,000 shares; 8,254,609 shares issued and 8,253,981 and 8,249,317 shares outstanding at November 30, 2014 and August 31, 2014, respectively			83				83
Additional paid-in capital			4,376,136				4,378,385
Accumulated deficit			(4,527,921	)			(4,508,333	)
Treasury stock at cost (625 and 5,292 shares at November 30, 2014 and August 31, 2014, respectively)			(226	)			(3,147	)
Total stockholders’ deficit			(151,927	)			(133,011	)
Total liabilities and stockholders’ deficit		$	24,481			$	33,257

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Operations

Three months ended November 30, 2014 and 2013

(Unaudited)

 

		Three Months Ended
		November 30,
		2014				2013
Oil and gas production		$	-			$	-
Total revenues			-				-
Costs and expenses:
Selling, general and administrative expense			10,697				59,154
Total costs and expenses			10,697				59,154
Loss from operations			(10,697	)			(59,154	)
Other expenses (income):
Other income			(103	)			(100	)
Loss (gain) on commodities trading			8,743				(3,015	)
Interest expense			251				12,978
Total other expense (income)			8,891				9,863
Net loss		$	(19,588	)		$	(69,017	)
Net loss per share, basic and diluted		$	(0.00	)		$	(0.38	)
Weighted average shares outstanding, basic and diluted			8,251,702				179,527

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows

Three Months Ended November 30, 2014 and 2013

(Unaudited)

 

		Three Months Ended
		November 30,
		2014				2013
Cash flows from operating activities
Net loss		$	(19,588	)		$	(69,017	)
Adjustment to reconcile net loss to net cash used in operating activities:
Amortization of stock option cost			-				22,798
Change in other assets and liabilities:
Marketable securities			8,568				-
Accounts payable and accrued expenses			2,876				37,023
Net cash used in operations			(8,144	)			(9,196	)
Cash flows from investing activities
Proceeds from sale of treasury stock			898				-
Purchase of treasury stock			(226	)			-
Net cash provided by investing activities			672				-
Cash flows from financing activities
Proceeds of related party loans			7,264				-
Loan proceeds			-				52,000
Loan repayment			-				(13,150	)
Net cash provided by financing activities			7,264				38,850
Net increase (decrease) in cash and cash equivalents			(208	)			29,654
Cash, beginning of period			288				32,541
Cash, end of period		$	80			$	62,195
Supplemental cash flow information
Cash paid for interest		$	-			$	-
Cash paid for income taxes			-				-

 

See accompanying notes to condensed consolidated financial statements.

 

 

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

November 30, 2014

(Unaudited)

 

1	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Royal Energy Resources, Inc. (“RER”) and its wholly owned subsidiaries S.C. Golden Carpathan Resources S.R.L. (“SCGCR”), a Romanian corporation and Development Resources Inc (“DRI”), a Delaware corporation. SCGCR and DRI had no operations as of November 30, 2014.

 

All significant intercompany balances and transactions have been eliminated in consolidation.

 

The condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These condensed consolidated financial statements have not been audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report for the year ended August 31, 2014 filed with the SEC on December 11, 2014.

 

The results of operations for the three months ended November 30, 2014 are not necessarily indicative of the results to be expected for the entire year.

 

Organization and nature of business

 

RER is a Delaware corporation which was incorporated on March 22, 1999, under the name Webmarketing, Inc. (“Webmarketing”). On July 7, 2004, the Company revived its charter and changed its name from Webmarketing to World Marketing, Inc. In December 2007 the Company changed its name to Royal Energy Resources, Inc.

 

The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties.

 

2	GOING CONCERN

 

The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company has accumulated a net loss of $4,527,921 through November 30, 2014, and incurred a loss of $19,588 for the three months then ended.

 

 

The Company is currently attempting to secure financing in Europe. There can be no assurance that the Company will be able to complete this financing.

 

Investments in the Company’s common stock involve a high degree of risk and could result in a total loss of the investment.

 

3	MARKETABLE SECURITIES

 

The Company has purchased several commodities positions, principally in wheat and soybeans, which are due within three to four months. These contracts are valued at November 30, 2014 and August 31, 2014, as follows:

 

		November 30, 2014				August 31, 2014
Open contracts		$	11,501			$	20,069
Unrealized (gain) loss			-				-
Balance		$	11,501			$	20,069

 

4	ENERGY PROPERTIES

 

At November 30, 2014 and August 31, 2014, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming.

 

5	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following as of November 30, 2014 and August 31, 2014.

 

		November 30, 2014				August 31, 2014
Trade accounts payable		$	44,403			$	41,777
Consulting fees payable			30,000				30,000
Accrued interest			3,214				2,964
		$	77,617			$	74,741

 

 

6	CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

 

Notes payable consist of the following at November 30, 2014 and August 31, 2014.

 

		November 30, 2014				August 31, 2014
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due		$	29,900			$	29,900
Convertible note payable dated September 1, 2011; due October 1, 2011; interest at 2% per annum; convertible into common stock at $0.001 per share (limited to 9.99% of total shares issued and outstanding); past due			19,500				19,500
Total convertible notes payable			49,400				49,400
Note payable; non-interest bearing; due on demand			33,785				33,785
		$	83,185			$	83,185

 

Convertible notes payable

 

Effective September 1, 2011, the Company exchanged accounts payable in the amount of $49,400 for two promissory notes in the same amount. The notes bear interest at 2% per annum and were due on October 31, 2011. Total accrued interest for the convertible notes payable as of November 30, 2014 and August 31, 2014 are $3,214 and $2,964, respectively. The notes are currently past due. On September 11, 2011, the board of directors authorized the Company to issue up to 40,000,000 shares of its common stock in exchange for the notes, limited to a maximum of 9.9% of the total outstanding shares. On October 1, 2013, the parties agreed to a conversion price of $0.001 per share. At November 30, 2014, up to 1,175,818 of the Company’s common shares could be issued for a portion of the convertible notes payable due to the 9.9% limitation.

 

Note payable

 

On March 10, 2013, the Company arranged a non-interest bearing demand loan with an individual in the amount of $149,000, which has a balance of $33,785 at November 30, 2014 and August 31, 2014, respectively. The balance of $33,785 at November 30, 2014 and August 31, 2014 included imputed interest of $700 and $700, respectively.

 

7	STOCKHOLDERS’ EQUITY

 

Common stock

 

In October 2012, the Company amended its charter to authorize issuance of up to 500,000,000 shares of common stock with a par value of $.00001. At November 30, 2014, 8,254,609 shares were issued, 625 shares were in treasury stock and 8,253,984 were outstanding. At August 31, 2014, 8,254,609 shares were issued, 5,292 shares were in treasury stock and 8,249,317 shares were outstanding. During the quarter ended May 31, 2014, the Company issued 1,850,000 shares of its common stock in exchange for certain liabilities. The agreements were cancelled effective August 31, 2014 and the shares were cancelled.

 

 

Series A preferred stock

 

In November 2007, the Company amended its charter to authorize issuance of up to 10,000,000 shares of its $0.00001 preferred stock. The amendment became effective on December 12, 2007, upon filing with the Delaware secretary of state. In December 2007 the Company issued 100,000 shares of its Series A preferred stock to its President and Chief Executive Officer for $1,000. The certificate of designation of the Series A preferred stock provides: the holders of Series A preferred stock shall be entitled to receive dividends when, as and if declared by the board of directors of the Company; participates with common stock upon liquidation; convertible into one share of common stock; and has voting rights such that the Series A preferred stock shall have an aggregate voting right for 54% of the total shares entitled to vote.

 

Reverse stock split and increase in authorized shares

 

On August 7, 2012, the Company received approval by written consent, in lieu of a special meeting, of the holders of a majority of our outstanding voting power authorizing the Board of Directors of the Company to: (i) effectuate the reverse stock split of our issued and outstanding shares of common stock, par value $0.00001, on a 1 for 500 basis and (ii) increase the authorized shares of common stock, par value $0.00001, from 100,000,000 shares to 500,000,000 shares. The stock split was effectuated on October 1, 2012 upon filing appropriate documentation with FINRA. The increase in authorized shares was completed on October 9, 2012 when the amendment was filed with the Delaware Secretary of State. All share references included herein have been adjusted as if the change took place before the date of the earliest transaction reported.

 

Stock option plan

 

The Royal Energy Resources, Inc. 2008 Stock Option Plan (“Plan”) was filed on June 27, 2008 and reserves 8,000 shares for Awards under the Plan, of which up to 6,000 may be designated as Incentive Stock Options. The Company’s Compensation Committee is designated to administer the Plan at the direction of the Board of Directors. No options are outstanding under the Plan at November 30, 2014.

 

Stock option

 

On August 23, 2013, the Company issued an option to a consultant for 750,000 shares at $0.07 per share which expires on December 31, 2014 if not previously exercised. The agreement was forfeited in July 2014 with no liability to the Company.

 

Consulting and financial services agreements

 

The Company has entered into various consulting and financial services agreements. The cost associated with the agreements is being amortized over the period of the agreements.

 

Other shares issued in fiscal year 2014

 

During the year ended August 31, 2014, the Company issued its common shares in the following transactions.

 

The Company entered into a consulting agreement with an unrelated individual which provided for a payment of $30,000 in cash and 800,000 shares of the Company’s common stock for services. The shares were valued at $320,000 based on the posted price of the shares on the date of the agreement. The expense was amortized over the two month period of the agreement.

 

The Company entered into a loan extension agreement with an unrelated individual note holder which provided for an issuance of 275,000 shares of the Company’s common stock. The shares were valued at $20,625 based on the posted price of the shares on the date of the agreement. The expense was amortized over the extension period which ended on December 31, 2013.

 

The Company entered into an agreement with an unrelated individual note holder which provided for an issuance of 300,000 shares of the Company’s common stock in exchange for $22,500 in principal reduction in the note. The exchange was valued based on the posted price of the shares on the date of the agreement.

 

 

Shares issued to related party

 

During the year ended August 31, 2014, the Company issued 6,700,000 shares of its common stock to its Chief Executive Officer and Director for $100,500 owed to him, including $71,550 assumed by him of the Company’s liabilities to third party vendors. The amount owed him included $20,660 of compensation accrued in 2013 but not paid until 2014. The fair value of the shares was $502,500 (market price of common stock $0.075 per share on date of transaction). The difference between the value of the shares and the amount paid of $402,000 is included as non-cash compensation in selling, general and administrative expense in the statement of operations. This compensation was for the years 2008 through 2014 for which the President and Chief Executive Officer had not previously received any compensation.

 

8	RELATED PARTY TRANSACTIONS

 

The President and Chief Executive Officer of the Company made loans and advances to the Company since its inception. During fiscal 2005, the total amount of $6,560 was contributed to the capital of the Company.

 

Due to related party at November 30, 2014 and August 31, 2014 amounted to $15,606 and $8,342, respectively. The President and Chief Executive Officer of the Company made a loan to the Company of $7,264 during the three months ended November 30, 2014 and $8,132 during 2012. During the year ended August 31, 2014, $7,290 of this loan was used to acquire common stock from the Company. An addition to the loan of $7,500 was made when the President and Chief Executive Officer assumed this amount that was owed by the Company to a third party lender. The total balance of $15,606 at November 30, 2014 is due on demand, is non-interest bearing and has no repayment date. The details of the due to related party account are summarized as follows:

 

		November 30, 2014				August 31, 2014
Beginning balance		$	8,342			$	28,792
Cash loan			7,264				1,000
Assumption of accounts payable owed to third parties							71,550
Assumption of portion of note payable owed to third party							7,500
Used to purchase common stock, described below			-				(100,500	)
		$	15,606			$	8,342

 

In January 2014, the President and Chief Executive Officer of the Company acquired 6,700,000 shares of the Company’s common stock in exchange for $100,500 due to him, including $71,550 assumed by him of the Company’s liabilities to third party vendors. The fair value of the shares was $502,500. The difference between the value of the shares and the amount paid of $402,000 is included as non-cash compensation in selling, general and administrative expense in the statement of operations. This compensation is for the years 2008 through 2014 for which the President and Chief Executive Officer had not been previously received any compensation.

 

Effective May 31, 2013, the Board of Directors of the Company approved compensation in the amount of $320,000 for the Company’s President, who also serves as Chief Executive Officer and Chief Financial Officer of the Company. The compensation covered the years 1999 through 2007, for which the executive had not received any prior compensation. Subsequently, $299,340 of this amount was used to repay the remaining balance of stock subscription loans, which completed payment for the amount owed for 83,400 shares of the Company’s common stock. The $20,660 balance at August 31, 2013 was used during 2014 to acquire common stock from the Company.

 

In December 2007 the Company issued 100,000 shares of its Series A preferred stock to its President and Chief Executive Officer for $1,000. The certificate of designation of the Series A preferred stock provides: the holders of Series A preferred stock shall be entitled to receive dividends when, as and if declared by the board of directors of the Company; participates with common stock upon liquidation; convertible into one share of common stock; and has voting rights such that the Series A preferred stock shall have an aggregate voting right for 54% of the total shares entitled to vote.

 

9	SUBSEQUENT EVENT

 

On December 12, 2014, the Company entered into a consulting agreement with an individual to provide services and advice for mergers and acquisitions. The terms of the agreement call for payment of $18,000 in cash and issue of 410,000 shares of the Company’s restricted common stock, which was valued at $41,000 based on the trading price of the common stock on the date of the transaction.

 

 

Item 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement.

 

At the present time we have only nominal overhead costs. Our officers do not receive any payroll and our administrative assistance is now being provided on a reimbursement basis. This situation will remain constant until such time as we have sufficient capital to afford to pay salaries.

 

We have access to nominal capital. An investment in our securities represents a high degree of risk.

 

MINING - The Company is currently pursuing gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. If successful, the Company plans to concentrate its efforts to develop these properties. At November 30, 2014 and August 31, 2014, the Company held the lease for 2,100 acres of rare earth and precious metals leases in Crook County, Wyoming. The rare earth and precious metals leases are approximately 5-15 miles from Bear Lodge Mountain near Sundance, Wyoming. The U.S. Geological Survey has studied Bear Lodge Mountain extensively (USGS Prof. paper #1049-D) and has estimated it contains one of the largest deposits of disseminated rare earth elements in North America.

 

UNDEVELOPED LEASEHOLD NOT BEING AMORTIZED - The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. At November 30, 2014 and August 31, 2014, the Company had sold all of its remaining mineral leases and retained a 1% overriding royalty interest in the majority of the properties. As of May 31, 2014, the Company had collected approximately $89,000 from sales of leases and royalty interests. The Company is negotiating with energy companies to develop the potential resources that may be contained in these properties.

 

Liquidity, Capital Resources and Going Concern

 

Historical information - The Company has not established sources of revenues sufficient to fund the development of business, projected operating expenses and commitments for the next year. The Company has accumulated a net loss of $4,527,921 through November 30, 2014, and incurred a loss of $19,588 for the three months then ended.

 

The Company is currently attempting to secure financing in Europe. There can be no assurance that the Company will be able to complete this financing.

 

Undeveloped oil and gas leasehold interests - The Company has been the successful bidder in United States Government auctions to purchase certain oil and gas lease rights. The Company has entered into agreements and then sold, by assignment, the rights, title and interest in certain of these leases and retained an over-riding royalty interest. Revenue from these transactions is accounted for using the full cost method of accounting. At November 30, 2014 all leases covering oil and gas lease rights had been sold with an overriding royalty interest retained and the Company had collected approximately $89,000 from sales of these leases and royalty interests. As of November 30, 2014, the operators of some of the leases have drilled non-productive wells and the Company is not currently deriving any additional revenue from the overriding royalty interests.

 

Oil and gas drilling activity - During 2008, the Company prepaid $119,011 as estimated drilling and completion costs for a 25% working interest in three wells in Washington County, Oklahoma. Two of the wells were completed in September and October 2008 and the third well was abandoned in 2010. During 2009, the Company advanced an additional $42,000, net, to apply toward workover of three additional wells. The work on the workover wells was completed during 2010 without obtaining commercial production. These workovers proved unsuccessful and the wells were all abandoned. Effective October 1, 2010, the Company’s interest in the two producing wells were sold.

 

 

Investments in the Company’s common stock involve a high degree of risk and could result in a total loss of the investment.

 

At November 30, 2014 our current assets were $11,581 (August 31, 2014:$20,357) and our current liabilities were $176,408 (August 31, 2014:$166,268), which resulted in a working capital deficit of $164,827 (August 31, 2014:$145,911).

 

At November 30, 2014 our current assets consisted of cash in the amount of $80 (August 31, 2014:$288) and marketable securities of $11,501 (August 31, 2014:$20,069). At November 30, 2014 ($176,408) and August 31, 2014 ($166,268), our total liabilities were all current liabilities and consisted of accounts payable and accrued expenses of $77,617 (August 31, 2014:$74,741); convertible notes payable of $49,400 (August 31, 2014:$49,400); note payable of $33,785 (August 31, 2014:$33,785); and due to related party of $15,606 (August 31, 2014:$8,342).

 

Total assets at November 30, 2014 amounted to $24,481 (August 31, 2014:$33,257) and included current assets of $11,581 (August 31, 2014:$20,357) and an investment in mining leases of $12,900 (August 31, 2014:$12,900). The decline in total assets of $8,776 was primarily the result of the decline in marketable securities of $8,568).

 

At November 30, 2014, our total liabilities and our current liabilities of $176,408 (August 31, 2014:$166,268) increased $10,140. The increase consists of additional loans from a related party of $7,264 and an increase in accounts payable and accrued expenses of $2,876.

 

Stockholders’ deficit increased from ($133,011) at August 31, 2014 to ($151,927) at November 30, 2014.

  

Evaluation of the amounts and certainty of cash flows – Currently the Company has no revenue and relies on its CEO and loans to fund operations. There can be no assurance that the CEO will be able to continue to fund operations or obtain loans.

 

Cash flows used in operating activities

 

During the three months ended November 30, 2014 and 2013, the Company used cash in operations of ($8,144) and ($9,196), respectively. Cash flow used in operations during the 2014 period consisted of a net loss of ($19,588) (2013:($69,117)); amortization of stock option cost $0 (2013:$22,798); and change in other assets and liabilities of marketable securities of ($8,568) (2013:$0) and accounts payable and accrued expenses of $2,876 (2013:$37,023).

 

Cash flows from investing activities

 

During the three months ended November 30, 2014, the Company had cash provided from investing activities of $672 (2013:$0) which consisted of proceeds from sale of treasury stock of $898 less the purchase of treasury stock of $226.

 

Cash flows from financing activities

 

During the three months ended November 30, 2014, the Company had cash provided by financing activities of $7,264, which came from related party loans. During the three months ended November 30, 2013, the Company had cash provided by financing activities of $38,850, which consisted of loan proceeds of $52,000 less $13,150 in loan repayment.

  

 

MATERIAL COMMITMENTS

 

During fiscal year 2015, the Company has the following material commitments.

 

Convertible notes payable - Effective September 1, 2011, the Company exchanged accounts payable in the amount of $49,400 for two promissory notes in the same amount. The notes bear interest at 2% per annum and were due on October 31, 2011. Total accrued interest for the convertible notes payable as of November 30, 2014 and August 31, 2014 are $3,214 and $2,964, respectively. The notes are currently past due. On September 11, 2011, the board of directors authorized the Company to issue up to 40,000,000 shares of its common stock in exchange for the notes, limited to a maximum of 9.9% of the total outstanding shares. On October 1, 2013, the parties agreed to a conversion price of $0.001 per share. At November 30, 2014, up to 1,175,818 of the Company’s common shares could be issued for a portion of the convertible notes payable due to the 9.9% limitation.

 

Note payable - On March 10, 2013, the Company arranged a non-interest bearing demand loan with an individual in the amount of $149,000, which has a balance of $33,785 at November 30, 2014 and August 31, 2014, respectively. The balance of $33,785 at November 30, 2014 and August 31, 2014 included accrued interest of $700 and $700, respectively.

 

Cash requirements and capital expenditures – The Company has not had any recent capital expenditures.

 

Known trends and uncertainties – The Company is involved to a very limited degree in a very competitive business. The uncertainty of the economy has increased the difficulty of raising funds to support the current planned mining and energy business.

 

What balance sheet, income or cash flow items should be considered in assessing liquidity – We will continue to seek funding to finance our planned mining and energy developments, which if successful could materially impact the current capital structure.

 

Our prospective sources for and uses of cash – The Company is seeking financing to be used to continue its mining development plans. There can be no assurance that the Company will be successful.

  

COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013

 

Our net loss for the three months ended November 30, 2014 and 2013 was $19,588 and $69,017, respectively, a decrease of $49,424.

 

We had no revenue during the three months ended November 30, 2014 or 2013.

 

Selling, general and administrative expense

 

During the three months ended November 30, 2014 and 2013, our selling, general and administrative expenses amounted to $10,697 and $59,154, as follows:

 

		2014				2013
Accounting and auditing		$	6,430			$	8,035
Consulting fees			1,560				44,048
New York city and state franchise tax, interest and penalties			-				5,016
Other			2,707				2,055
		$	10,697			$	59,154

 

Accounting and auditing expense declined $1,605 from $8,035 in 2013 to $6,430 in 2014 primarily due to a decline in audit costs.

 

 

Consulting fees declined $42,485 from $44,048 in 2013 to $1,560 in 2014. The amount in 2013 is the accrual of compensation to be paid with common stock and the amortization of the cost of an associated option. These costs were reversed in the last quarter of fiscal year ended August 31, 2014 when the agreements were cancelled. The expense of $1,560 in 2014 is for a geologist in Romania.

 

New York city and state franchise tax, interest and penalties in 2013 includes the franchise taxes, interest and penalties for several years delinquent franchise tax returns filed and paid during the 2013 period.

 

Other expenses (income)

 

Other expense (income) for the three months ended November 30, 2014 and 2013 of $8,891 and $9,863, respectively, follows.

 

		2014				2013
Other (income)		$	(103	)		$	(100	)
Loss (gain) on commodities trading			8,743				(3,015	)
Interest expense			251				12,978
		$	8,891			$	9,863

  

Loss (gain) on commodities trading amounted to a loss of $8,743 in 2014 and a gain of $3,015 in 2013.

 

Interest expense amounted to $251 in 2014 and $12,978 in 2013, a decline of $12,727. The 2013 amount included $12,732 in loan fee amortization which was paid with common stock.

 

Thus, the Company’s net loss for the quarters ended November 30, 2014 and 2013 amounted to $19,588 ($0.00 per share) and $69,017 ($0.38 per share), respectively. The weighted average number of shares outstanding during the 2014 period was 8,251,702 and for the 2013 period was 179,527.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

 

Item 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

  

Item 4T:

CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of November 30, 2014. Our management has determined that, as of the date of this report, the Company’s disclosure controls and procedures are not effective for reasons disclosed in the Form 10-K dated August 31, 2014.

 

(b) Changes in Internal Controls

 

There have been no changes in internal controls over financial reporting or in other factors that could significantly affect these controls that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the quarter ended November 30, 2014, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

PART II - OTHER INFORMATION

 

Item 1:

LEGAL PROCEEDINGS

 

None

 

Item 1A:

RISK FACTORS

 

Not applicable.

 

Item 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On December 12, 2014, the board of directors of the Company approved issuing 410,000 shares of its common stock to an unrelated individual pursuant to a consulting agreement.

 

The shares were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended.

 

Item 3:

DEFAULTS UPON SENIOR SECURITIES.

 

None

 

Item 4:

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

None

 

Item 5:

OTHER INFORMATION.

 

None

 

Item 6:

EXHIBITS

  

	Exhibit 31.1*	Certification pursuant to 18 U.S.C. Section 1350
		Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1*	Certification pursuant to 18 U.S.C. Section 1350
		Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS**	XBRL Instance Document
	101.SCH**	XBRL Taxonomy Extension Schema Document
	101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: January 8, 2015

 

	Royal Energy Resources, Inc.
	By:	/s/ Jacob Roth
		Jacob Roth
		President, CEO and CFO